In the coming years, a considerable amount of farmland will be transferred to the next generation. According to recent census data, the average age of landowners continues to rise, leading to a significant land transition as older generations pass it down to their heirs. In Iowa alone, 60% of farmland is owned by people over the age of 65.*
Inheriting land can be both exciting and daunting. Whether you’re familiar with farming or not, understanding your options is essential to making informed decisions that align with your personal and financial goals.
Choosing the Right Strategy for Your Land
When inheriting farmland, you are faced with a multitude of decisions.
“Inheriting a farm can be overwhelming. There’s a whirlwind of emotions and many decisions to make,” said Ross Perkins, vice president, farm manager and broker for Murray Wise Associates (MWA). “Understanding the owner’s goals is paramount, as it ensures that decisions made about the land align with their long-term objectives, preserving both economic value and family legacy.”
If you lack the expertise for independent management or prefer not to farm, you might consider selling the land, leasing it or hiring a professional management company. Each choice offers unique benefits and considerations.
● Selling the land:
Selling inherited land can be a straightforward way to convert your inheritance into liquid assets, especially if you do not desire to maintain the property or would prefer a cash option. Selling farmland requires an understanding of market conditions, property value and the best time to sell.
You have two primary options: listing the farm or auctioning it. Listing allows you to control the price but not the timing, potentially resulting in a longer time on the market. Auctioning provides a faster sale and control over timing but comes with price uncertainty.
Taxes are another significant consideration when selling a farm. Estate and capital gains taxes can reduce your net proceeds if not planned carefully. Consulting with land management professionals can provide valuable insights into navigating these complexities and help you achieve the best possible outcome.
● Leasing the land:
Leasing is a popular option for those who wish to retain ownership of the land while generating income. There are different types of lease agreements to consider, each with its own set of advantages and responsibilities.
● Cash rent lease: In this straightforward agreement, the tenant pays a fixed rent for the use of the land. The tenant has complete control over the farming operation, while the landowner receives a fixed cash payment per acre per year. This provides a steady income and is relatively low-risk for the landowner.
● Crop share lease: In this arrangement, the landowner and tenant share the harvest profits and the crop production expenses. This can be beneficial if crop prices are high but can involve more risk and management involvement.
● Flexible cash lease: This plan combines elements of both cash rent and crop share leases, where the rent payment can vary based on yields and crop prices.
Choosing the right lease type depends on your willingness to take on risk and your interest in being involved in farming decisions. A professional adviser can help determine which lease agreement aligns with your goals.
● Hiring a professional farm manager:
If you prefer to keep the land but lack the knowledge or desire to manage it, hiring a professional farm manager can be a valuable option. A farm manager handles all aspects of the farming operation, from planting and harvesting to marketing and financial management. This allows the landowner to benefit from the land without the day-to-day responsibilities.
How Murray Wise Associates Can Help You Sell, Lease or Manage Land
MWA is dedicated to helping landowners navigate the complexities of managing farmland. Here’s how we can assist:
● Sales:
MWA offers comprehensive services to assist in selling farmland, including market analysis, effective marketing strategies, various auction options, bidder matching and complete transaction management, ensuring the best possible return on your investment.
● Leasing:
Understanding the intricacies of different lease agreements can be challenging. MWA helps landowners determine the best lease option by assessing their financial goals, risk tolerance and desired level of involvement.
● Farm management:
MWA provides comprehensive farm management services to ensure your land operates efficiently and profitably. We handle all operational aspects, including planting, harvesting, marketing and financial management and finding a reliable tenant who aligns with your vision for the land.
More and more landowners are becoming further removed from the day-to-day operations of farming, making selling, leasing or professional management a practical solution.
“We’re up to date with market trends and the latest in farming practices, which allows us to implement the owner’s goals more efficiently than someone without farming experience,” said Perkins. “MWA can match your land with excellent farmers and handle all administrative tasks, from collecting rents and paying bills to providing quarterly and annual reports. Our comprehensive services ensure your property is well-maintained and generates a good return, giving you peace of mind and financial benefits, without the complexities of personal management.”
Ready to Make Informed Decisions About Your Farmland?
Navigating the responsibilities of inherited farmland can be complex, but you don’t have to do it alone. MWA offers comprehensive services to help you make informed decisions that align with your goals. Subscribe to the Murray Wise Land Review and Quarterly Newsletter for valuable updates on market trends, land values and expert insights that can significantly influence your land management and selling strategies.
* Iowa State University Extension: Getting Started in Farming: Inheriting a Farm